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Pivot point based trading explained with strategies on those levels


What is pivot point ?
A pivot point (or fulcrum) is a point around which future price movement is expected to range.

Concepts of Pivot point
Based on previous days high, low and closed, pivot point, three resistance R1, R2, R3 and three support S1, S2, S3 are calculated. It is believed that stock price will range around pivot point most of the time. When stock price reaches first resistance it has a tendency to react to pivot point and in the same way when it moves towards first support it has tendency to react to pivot point. The more movement away pivot point like R3/S3 the more tendency to retrace.

Origin of Pivot Point in stock trading
Use of pivot point is noticed from trader trading in trading zone of the market using pens and papers. These traders used to use these support and resistance to trade in stocks. Even when sophisticated tools have come these points have not lost its significance.
In fact they are used along with tools like candlestick, RSI etc.

Tips on trading with pivot point

Other useful information's helpful while learning Pivot Points


Formula for Pivot Point Calculation

Pivot point (P) = (H + L + C) / 3
Resistance1 (R1) = (P x 2) - L
Support1 (S1) = (P x 2) - H
Where, H - Highest Price of Previous Day, L - Lowest Price of Previous Day, C - Closing Price of Previous Day

Resistance Level 2 (R2) = (Pivot Point - Support Level 1) + Resistance Level 1
Support Level 2 (S2)= Pivot Point - (Resistance Level 1 - Support Level 1)
Resistance Level 3 (R3)= (Pivot Point - Support Level 2) + Resistance Level 2
Support Level 3 (S3)= Pivot Point - (Resistance Level 2 - Support Level 2)

Pivot Point and TopStockResearch
Pivot Point in TopStockResearch is shown with three support (S1, S2, S3) and three resistance(R1, R2, R3) respectively for each stock.

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